Nigeria resumes negotiations with oil majors on refineries

Feb 16, 2004 01:00 AM

The Federal Government has renewed negotiations with multinational oil companies operating in the country, in a bid
to woo the firms to take controlling shares in the nation's oil refineries. Also the US Export Import Bank announced
that it has approved a loan guarantee for more than $ 10 mm to finance the construction of a Nigerian private
refinery, to be established in Akwa Ibom State.
The government called for a re-negotiation with the oil majors after a scrutiny of the list of companies that have
expressed interest in acquiring controlling stakes in the refineries, returned an uninspiring result. The Federal
Government, through the Bureau of Public Enterprises (BPE), plans to sell 51 % shares in the refineries, while the
remaining 49 % shares are to be sold to the Nigerian public on the Stock Exchange.

Earlier moves by the government to get the oil majors, mainly involved in oil exploration and production in the
country in joint venture partnerships with the government, manage the refineries had failed as the companies turned
down the offer. The companies had declined the offer on the grounds that the refineries are not good enough to meet
the efficiency level that will guarantee the approval of their parent companies; that the Niger Delta crisis remained
unresolved nearly one year after violence first broke out; and that the downstream oil sector was yet to be fully
deregulated to guarantee recovery of investment.
Presidency sources, however, hinted that government may come up with a carrot and stick measure to get the oil majors
interested in the refineries.

"We know that they have turned down the request before. But we have what we will use to arm-twist them now," a senior
government official said. The sources said the government was not satisfied with the companies that had expressed
interest in buying the refineries.
"Apart from the absence of notable refiners, we have a situation where some national oil companies of other countries
also bidded for the refineries," sources said. "What happens to our plants should the governments of these countries
also divest from the companies after they must have taken over our refineries?

About 34 companies expressed interest last November to acquire controlling stakes in the refineries. Although the BPE
said the bids were currently being evaluated, some of the promoters said they had been kept in the dark on the
privatisation plan even as the March date for the sale of the Port Harcourt refinery fast approached.
The Presidential Adviser to the President on Energy, Dr Edmund Daukoru, said the privatisation of the refineries was
still very much on course, adding that government was first aiming to revamp the ailing plants before "divesting from
them".
"We want to get them functional before we get core investors," Daukoru said, adding that the government was not
totally given away the refineries but only partially divesting its shares from the plants.

Nigeria, Africa biggest oil producer, relies heavily on importation to meet its domestic fuel demand, due to the poor
state of the four state-owned refineries. The country currently imports about 24 cargoes of petroleum products per
month.
The Federal Government is however, pumping $ 150 mm into the revamping of the Fluid Catalytic Cracking (FCC) units in
the refineries to boost production of premium motor spirit (PMS), popularly known as petrol to 18 mm litres per day,
from the current level of 4.8 mm litres, when the revamp is completed next May.

Meanwhile, moves to establish private refineries in the country has received a boost following the approval of the US
Export Import Bank of a loan guarantee for more than $ 10 mm to finance the construction of Phase 1 of the proposed
12,000 bpd Amakpe Modular refinery project at Eket in Akwa Ibom State. The company was one of the 18 companies the
Federal Government had granted preliminary licenses in June 2002 to set up private refineries as part of the moves to
boost local production of petroleum products.
Phase one of theAkwa Ibom refinery project, estimated to cost about $ 29.8 mm and scheduled to start production by
February 2005, covers the manufacture and installation of a 6,000 bpd crude distillation unit, a 120,000 barrels
capacity tank farm, pipelines, boiler and blower systems, and desalter and cooling tower systems.

The second phase of the project will involve the additional installation of a 6,000 bpd distillation unit, a 4,000
bpd catalytic reformer-hydrotreater, a 3 MW power plant, and a 120,000 barrels capacity tank farm and accessories.
Production start-up is expected by February 2006.
Amakpe Modular refinery was one out of six companies that scaled the first stage in the three-stage conditions set by
the Federal Government before approval for construction of refineries is granted.
"There are five others on the queue to get the approval for construction," a Ministry of Petroleum Resources official
disclosed.

The companies will pay a total sum of $ 150,000 to get approval to construct a refinery.
The Federal Government, the official added, was targeting that about three new private refineries will be on stream
by 2008.

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